AFR Statement: Hensarling Plan Would Dramatically Weaken Financial Regulation


Jeb Hensarling, the Texas congressman who chairs the House Financial Services Committee, has been a steadfast opponent of the Dodd-Frank Act and, for that matter, of just about all efforts to rein in the excesses of Wall Street and safeguard consumers against fraudulent or deceptive financial products and practices.

Most Americans approve of the reforms in Dodd-Frank and want to see financial regulation made tougher, not weaker. But Rep. Hensarling said recently that he “will not rest – and my Republican colleagues on the House Financial Services Committee will not rest – until we toss Dodd-Frank onto the trash heap of history.”

This week he outlined a plan to do just that. In addition to repealing many of the reform measures adopted in response to the financial crisis of 2008, Hensarling would burden regulators with a series of crushing new procedural duties that would massively increase the difficulty of enforcing the rules his plan theoretically leaves intact.

While Hensarling’s new “analysis” requirements would enormously hamper every financial regulatory agency, his plan takes special aim at the Consumer Financial Protection Bureau. It would specifically block the Bureau from acting against discriminatory auto lending and moving ahead with a proposal to curb the use of forced arbitration clauses that prevent consumers from suing banks and lending companies in court – a key instrument of Wall Street accountability. It would take away the Bureau’s independent funding, forcing it to depend on annual congressional appropriations. Instead of being led by a single director, the CFPB would be placed under a board of commissioners appointed by party leaders – a well-known formula for weak regulation at best and gridlock at worst.

The plan also guts the Financial Stability Oversight Council, created by Dodd Frank to identify and respond to dangerous new buildups of systemic risk, while adding major new barriers to effective risk oversight at the Federal Reserve as well. Before any of the financial regulators could do just about anything meaningful, they would need to secure the approval of both houses of Congress, as well as weather a wave of industry lawsuits facilitated by language in his proposal that would make it far easier to overturn agency actions in court.

Rep. Hensarling is very anxious to be perceived as something other than a pawn of Wall Street and predatory lenders, despite the heaping sums of money they have contributed to his campaign coffers. Although details are lacking, he says his plan includes higher bank capital standards and tougher penalties for bank wrongdoing. But in yet another piece of his proposal, he takes away authority that the Justice Department currently has to investigate and prosecute financial crime.

In short, this plan doesn’t get tough on banks; it gets tough on the regulators policing them. It would dramatically weaken their ability to do their jobs, and make it correspondingly easier for Wall Street banks, shadow banks, and lending companies to profit by ripping off consumers and engaging in reckless and dangerous short term speculation, rather than by providing loans, capital, and financial services on fair and transparent terms.